Buying in a new market

Purdue agricultural economist and futurist Dr. Mike Boehlje stands in agray flannel suit before more than 100 of the nation's best farmers at thisyear's Top Crop Farmers' Workshop in Lafayette, IN.

"Every once in a while, I like to raise questions to raise the hair on theback of your neck," Boehlje says. "Let me do it right now.

"Many Midwestern farmers have not had to make a lot of strategic choices asto what product they are going to produce," he says. Because of pastgovernment programs or normal crop rotation, most Midwest corn and soybeangrowers have been able to project for five years the crops they will grow,the number of acres they will plant and where they will plant them.

"Wheat farmers are even less strategic than Midwestern farmers - (theychoose) wheat or not wheat," Boehlje adds.

That's changing.

When products differentiate. Boehlje says agriculture is moving from acommodity industry to a differentiated product industry. And farmers willbe forced to make more strategic choices to compete.

One choice will be what type of product to sell. Boehlje sees three futuretypes: 1) commodities such as No. 2 yellow corn; 2) enhanced componentcommodities, such as high-oil corn, which starts out as a differentiatedproduct but eventually gets reduced to a commodity; and 3) specificattribute raw materials - for example, those products that are going to beused by the pharmaceutical and medical professions.

The first type will remain a relatively open market. The second will startout as a relatively closed market, such as contract production, and overtime may become more open with multiple opportunities to contract.

The third type will be a closed system, because what is needed is somethingso specific that the end user needs to have much more control over theprocess.

"The only way to get into it is to be a preferred qualified supplier. Not aproducer. Not a qualified supplier. But a preferred qualified supplier,"Boehlje says.

So how do you get there?

Build your soft assets. "What got you to where you are today, I wouldargue, is that you were a very good plant manager," Boehlje says. In otherwords, you managed such factors as cost, productivity, efficiency andoperations.

In the future, as we move into a differentiated product market, farmerswill still need those same plant manager skills. But they also will need tothink like a CEO and manage such things as people, money, relationships andstrategy. Boehlje calls those areas the"soft assets."

"It's the stuff that doesn't show up on your balance sheet," he says. "It'show smart you are, how adaptive you are, how responsive you are, how youhandle difficult situations, your knowledge, your information, therelationships you have, your ideas."

You also will have to be a first-mover to get on top of the newdifferentiated products faster than anybody else. That will requirealigning yourself with those suppliers that can provide access toinnovation.

"You don't want to get tied with someone who can only offer high-oil corn,because the premiums are going to disappear eventually," Boehlje says. "Andif they don't have another product following up for you to jump on, you arewith the wrong partner."

Bypass product decay. As a final warning, Boehlje says that value in adifferentiated product decays over time. "What does that mean? That meansthat if you are going to get into this kind of agriculture, you're going tohave to think about two treadmills."

The first is the technology treadmill, in which farmers must adapt to newtechnology, either early on or shortly after, to survive. Boehlje claimsthat the technology will change as fast as every three years as new ideascome along. "So you are in this constant process of having to ask yourself,What's the new thing, when should I put on a GPS, shouldn't we be into thevarying types of genetic manipulators and modified organism production,shouldn't we be . . .?"

The second treadmill is the differentiated product treadmill. Growers mustconstantly evaluate new products coming to market and choose the best onesto grow, or face substantial losses.